The Death of the Data Center Has Been Greatly Exaggerated

Many experts have predicted that the rise of cloud computing would result in the demise of the corporate data center. But it won't happen in our lifetimes, says Tabb Group's Alexander C. Tabb.

A lot has been written about the primacy of cloud computing and its impact on traditional IT infrastructures. Analysts and pundits have been proclaiming this The Decade of the Cloud, indicating that with the ascension of cloud computing, cloud-based architectures and cloud-oriented service models, traditional IT infrastructure and the classic data center model will go the way of the Dodo.

Well, let me be the first to say, not so fast. As Mark Twain so elegantly quipped, "The reports of my death have been greatly exaggerated." The same holds true for today's data center.

Yes, cloud computing is impacting the way the financial services community looks at traditional IT infrastructure. Yes, colocation and cloud-based services are allowing traditional data center users to shed critical services, reduce their footprints and move protected services outside of their firewalls. Yes, data centers and data center architectures have been evolving for years. But offloading distinct, even if critical, elements of your infrastructure is a long way from offloading everything. While cloud and colocation offer distinct value, that value proposition is limited in its size and scope.

Let's face facts: Todays' financial services world not only is heavily regulated, it is under immense economic pressure. Costs are up, revenues are down, and everyone is looking to improve efficiency without sacrificing effectiveness. Meanwhile, governments across the globe are pushing forward with broad new regulatory regimes that will have a significant impact on the way data is used and stored. More than 65 nations have established data protection laws regulating the collection, use, disclosure and security of personal information; many of these pertain directly to the financial services industry, and many impact the way in which data can be used and stored.

Broken Promises

When looking at cloud computing and its impact on traditional IT infrastructures, you cannot divorce the promise of the cloud from the reality of the cloud. Cloud technology is all about distribution of services and scalability. While cloud offers immense possibilities, it is not a panacea to all of our IT challenges. Cloud is making its way into the financial services community, but it will do so in a way that is consistent with the regulatory and economic environment in which we exist.

Publicly available clouds, such as Amazon's AWS -- which offer a great value proposition and have revolutionized the way the public views cloud technology -- are not the future of cloud in the capital markets. For the most part, market participants have been unwilling to go the distance with these types of infrastructures because of significant concerns about security, control and compliance. There are just too many challenges associated with offloading critical business processes to a cloud that allows access to anyone with a credit card. Likewise, community-based clouds, which limit access to specific community members, have been able to address the compliance, control and security aspects of cloud, but their value proposition is less compelling and, as such, their impact on the traditional data center model has been negligible.

On the other hand, private clouds, or cloud infrastructures that sit within a participant's firewall, are taking off within the sector. A growing number of larger institutions have invested in the development of large service and compute infrastructures that reside within the existing data center model. They offer the value proposition associated with public clouds and the security, compliance and control associated with traditional infrastructures.

One reason why public clouds are losing out to private clouds within the financial services industry is that the economics of public clouds oftentimes just do not work. According to a global sell-side data executive, managing 50 petabytes of data is something that just cannot be accomplished efficiently and effectively within an outsourced cloud environment. The costs are too prohibitive. A quick back-of-the-envelope calculation indicates that to store 50 petabytes of data on a public cloud would cost somewhere in the neighborhood of $1 million per year per petabyte. Enough said.

Instead of worrying about the death of the data center, IT executives should focus on how to get the most out of the data centers that they have. Thanks to a bleak market outlook, participants should be asking themselves, "How can I improve my overall total cost of ownership and gain more operational flexibility out of the resources at my disposal? What do I need? What can I shed? And how can I make it all as efficient as possible?"

Most assuredly, firms will continue to look to the cloud for relief. For larger institutions, that likely means developing their own internal cloud infrastructure. For smaller players, it may mean dumping existing proprietary data centers and consolidating their footprint into smaller, third-party locations where the total cost of ownership may be less. It also may mean leveraging cloud services and infrastructure when and where necessary.

Cloud is here to stay, at least until some newer form of shared IT infrastructure is developed. But that does not mean that the cloud cannot coexist with traditional assets and resources, including data centers. And as the cloud changes and evolves, so, too, will data centers. But neither needs to die so that the other can live.